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      Question

      The adjustments required in cash flow from operations to

      find free cash flow to the firm are:
      A Add non-cash charges and subtract investments (both fixed and working capital) Correct Answer Incorrect Answer
      B Add net borrowings Correct Answer Incorrect Answer
      C Add net borrowings and subtract CAPEX (Capital expenditure) Correct Answer Incorrect Answer
      D Add after-tax interest expense and subtract fixed capital investment Correct Answer Incorrect Answer
      E None of the above Correct Answer Incorrect Answer

      Solution

      Free cash flow to the firm will be equal to cash flow from operations and add back to it tax-adjusted interest expenses and deduct fixed capital investment. Working capital investments are already adjusted in CFO. Net borrowings matter for Free cash flow to equity.

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